Employer of Record (EOR) in Israel

Employment Laws and Regulations in Israel

Employment Contracts

Understanding Israel’s employment framework is essential for any employer of record in Israel, because the country does not have a single unified labour code. Employment relationships are governed by a collection of standalone statutes, including the Hours of Work and Rest Law 5711-1951, the Annual Leave Law 5711-1951, and the Severance Pay Law 5723-1963, among others (PwC Israel). The Ministry of Labor, Social Affairs and Social Services oversees enforcement.

All employers must provide a written notice of employment terms within 30 days of the start date under the Notice to Employee Law 5762-2002. The notice must specify salary, payment date, working hours, leave entitlements, pension arrangements, and any applicable extension orders or collective agreements. Contracts can be for an indefinite term or a fixed term, though fixed-term contracts that are renewed repeatedly may be reclassified as indefinite by Israeli labour courts.

Working Hours and Overtime

The standard workweek in Israel is 42 hours, reduced from 43 hours effective April 2018 under an amendment to the Hours of Work and Rest Law 5711-1951 (Gov.il). For a 5-day workweek, this translates to 8 hours and 24 minutes per day. The weekly rest day is Saturday (Shabbat), with at least 36 consecutive hours of rest required. Certain categories of employees, including managerial staff and those in positions requiring a special degree of personal trust, are exempt from overtime provisions.

Overtime is calculated on a daily basis. The Hours of Work and Rest Law caps daily overtime at 4 additional hours beyond the standard workday, and total weekly hours at 58. The annual overtime cap is 182 hours per calendar year, though employers can apply to the Ministry of Labor for a permit to extend this limit.

Employees exempt from overtime provisions include senior managers, employees whose working conditions do not allow employer supervision of hours, and certain other categories defined by ministerial order. The annual 182-hour overtime cap does not include rest-day or holiday work performed under a special permit.

Minimum Wage

The national minimum wage in Israel increased to ILS 6,443.85 per month effective April 1, 2026, equivalent to ILS 34.64 per hour based on a 42-hour workweek (CWS Israel). This represents a 3.3% increase from the previous rate of ILS 6,247.67 per month. The minimum wage applies uniformly across all sectors and is updated periodically by government order. Employers must ensure that total compensation, including base salary and fixed allowances, meets or exceeds the statutory minimum.

Probation Period

Israeli law does not prescribe a statutory probation period. Probation terms are set by the employment contract, with 3 to 6 months being the most common duration. During probation, the employee is entitled to all statutory protections, including minimum wage, social security contributions, and pension enrollment. The employer must still follow the pre-dismissal hearing (shimu’a) process before terminating a probationary employee. Notice periods during probation follow the standard rules under the Prior Notice Law 5761-2001 (Gov.il). More information on probation rules is available on Remote People’s Israel probation period page.

Leave Entitlements

Leave in Israel is spread across multiple standalone laws, each covering a different leave type. Employees start accruing leave from day one, and entitlements grow with tenure.

Annual Leave

Under the Annual Leave Law 5711-1951, employees working a 5-day week are entitled to a minimum of 12 working days of paid annual leave during each of the first 4 years of employment. Entitlements increase with tenure: 16 days in the fifth year, 18 days in the sixth year, and one additional day per year thereafter up to a maximum of 28 days (Gov.il). Leave accrues from the first day of employment and can be carried over, though employers may require employees to use a minimum number of days each year. Unused leave must be paid out upon termination.

Sick Leave

The Sick Pay Law 5736-1976 entitles employees to accumulate 1.5 sick days per month of employment, up to a maximum of 90 days. Payment during sick leave follows a tiered structure: the first day is unpaid, days 2 and 3 are compensated at 50% of the regular wage, and from day 4 onward the employee receives 100% pay (Gov.il). A medical certificate is required from the first day of absence. The employer bears the full cost of sick pay.

Maternity Leave

Under the Employment of Women Law 5714-1954, female employees are entitled to 26 weeks of maternity leave. Of these, 15 weeks are paid through a maternity allowance (dmei leda) funded by Bituach Leumi, provided the employee has paid National Insurance contributions for at least 10 of the 14 months preceding the birth, or 15 of the 22 months preceding the birth (Bituach Leumi). The remaining 11 weeks are unpaid. The employee may begin maternity leave up to 7 weeks before the expected due date. Job protection extends throughout the leave period and for 60 days after return.

Paternity Leave

Fathers are entitled to 5 days of leave following the birth, consisting of 3 paid days (using the employee’s sick leave balance or annual leave) and 2 unpaid days. Additionally, fathers may share a portion of the maternity leave with the mother: if the mother has taken at least 6 weeks of maternity leave, the father may take up to 9 weeks of the remaining entitlement, subject to Bituach Leumi eligibility requirements (Bituach Leumi).

Other Statutory Leave

Israeli law also grants these additional leave types:

• Bereavement leave: 7 days for first-degree relatives (parents, siblings, spouse, children), paid by the employer.
• Marriage leave: 3 days of paid leave for the employee’s own wedding.
• Reserve duty leave: Employees called for military reserve duty (miluim) receive full pay through Bituach Leumi reimbursement to the employer.
• Voting day: Election day is a paid day off by law.
• Adoption leave: Adoptive parents are entitled to the same leave duration as maternity leave, starting from the date the child is received.

Under the Annual Leave Law 5711-1951 and the various extension orders governing Israeli employment, the table below consolidates every statutory leave entitlement. The most significant provision for employers to note is that annual leave accrues from day one, not after any probation period, and unused leave creates a financial liability that must be settled upon termination.

Statutory Employee Benefits

Beyond leave and social security contributions, Israeli employers must provide several mandatory benefits established through legislation and extension orders:

• Mandatory pension: Since the 2008 Mandatory Pension Extension Order, all employees must be enrolled in a pension fund. The employer contributes 6.5% and the employee contributes 6% of the insured salary. Most employers also apply Section 14 of the Severance Pay Law, depositing an additional 8.33% monthly to cover future severance obligations.
• Convalescence pay (Dmei Havra’a): Employees who have completed at least one year of employment are entitled to annual convalescence pay. The number of days ranges from 5 to 10 based on tenure, at a rate of ILS 418 per day for 2026 (CWS Israel). This is typically paid as a lump sum in June or July.
• Travel allowance: Extension orders require employers to reimburse commuting costs up to a monthly cap based on the distance between the employee’s home and workplace, using public transportation rates.
• Keren Hishtalmut (education fund): While not mandatory by statute, the General Extension Order makes Keren Hishtalmut contributions standard practice. The employer typically contributes 7.5% and the employee 2.5% of salary up to a tax-beneficial ceiling of ILS 15,712 per month.
• Health insurance: Universal health coverage in Israel is provided through the National Health Insurance Law 5754-1994. All residents are covered through one of four health funds (kupot cholim), funded by the health tax deducted from employee wages. Employers do not pay a separate health insurance premium.

Detailed information on Israel’s benefits requirements is available on Remote People’s Israel employee benefits page.

Recent Regulatory Updates (2026)

A few notable changes to Israeli employment rules took effect in 2025 and 2026. The minimum wage increased to ILS 6,443.85 per month on April 1, 2026, continuing the government’s gradual increase trajectory (CWS Israel).

Income tax brackets were restructured for 2026, with the 20% bracket expanded to ILS 228,000 annually (up from ILS 193,800) and the 31% bracket starting at ILS 228,001 (up from ILS 193,801). The brackets have been frozen through 2027 with no inflation indexing (PwC Israel).

Keren Hishtalmut withdrawals saw a tax policy change: profits accumulated after January 2025 on deposits in education funds are now subject to capital gains tax upon withdrawal, whereas profits accumulated through December 2024 remain tax-exempt. Employers should factor this into benefits communication with employees.

Work Permits and Visas in Israel

Work Permit Requirements

Who Needs a Work Permit

All foreign nationals who are not Israeli citizens or permanent residents require a valid work visa to be employed in Israel. An employer of record in Israel can sponsor work permits on behalf of your employees, simplifying a process that would otherwise require a locally registered entity. There is no visa-free work authorization for any nationality. The Population and Immigration Authority (PIBA), operating under the Ministry of Interior, administers all work permit applications (Gov.il PIBA). The employer, not the employee, must initiate and sponsor the work permit application.

Eligibility and Required Documents

Eligibility for a B-1 work visa depends on the category. For expert workers, the employee must hold a relevant academic degree or professional qualification and the salary must meet minimum thresholds (approximately double the average wage for specialists). Required documents include a valid passport with at least 18 months remaining validity, a signed employment contract, academic credentials (apostilled), a criminal background check, a medical examination, passport photographs, and the employer’s company registration documents.

Processing Time and Validity

Standard B-1 work visa processing takes approximately 8 to 14 weeks from application submission to approval. The initial visa is typically valid for 1 year. Delays can occur due to security clearance requirements, incomplete documentation, or high application volumes during peak periods. The application fee is ILS 1,420 per year, which is non-refundable if the application is rejected.

Renewal Process

Work visa renewals must be submitted at least 30 days before the current visa expires. The renewal process requires updated employment documentation, proof of continued salary payment, and a valid employer sponsorship. Employees may continue working during the renewal period provided the application was submitted on time. B-1 visas can be renewed for up to 5 years total, after which additional extensions require special authorization.

Common Visa Types for Foreign Workers

The Population and Immigration Authority (PIBA) administers all work visas in Israel. The primary work authorization is the B-1 visa, which comes in multiple sub-categories based on the worker’s qualifications and the type of work. An EOR with a registered Israeli entity can sponsor most B-1 visa categories.

Visa types not listed above, such as tourist visas (B-2), student visas (A-2), and volunteer visas (A-1), do not authorize employment in Israel.

How an EOR Handles Work Permits

An EOR with a registered entity in Israel can act as the sponsoring employer for B-1 work visa applications. The EOR prepares and submits the work permit application to PIBA, provides the required employer documentation (company registration, financial statements, job justification), and manages the ongoing visa renewal process.

The employee’s responsibilities are limited to providing personal documents (passport, credentials, background check, medical exam) and attending any required interviews or biometric appointments. When a work permit is required, the onboarding timeline from the typical 1 to 2 weeks (referenced in the onboarding section above) extends by 8 to 14 weeks for standard processing. The EOR monitors visa expiration dates and initiates renewals proactively to prevent gaps in work authorization.

Payroll, Taxes, and Social Security in Israel

Employer Contributions

When you hire through an employer of record in Israel, the EOR handles all mandatory employer contributions. Israeli employers are responsible for National Insurance (Bituach Leumi) contributions, mandatory pension contributions, and severance fund deposits. The employer does not pay health insurance tax, as that is an employee-only deduction. Contribution rates are split between a reduced rate (on income up to 60% of the average wage) and a normal rate (on income above that threshold up to the contribution ceiling) (PwC Israel).

For more detail on Israel’s payroll and tax obligations, visit Remote People’s Israel payroll and tax page.

Employee Contributions

Israeli employees have National Insurance, health tax, and pension contributions deducted from their gross salary each month. The health tax funds Israel’s universal health coverage through the four kupot cholim (health funds). Like employer contributions, employee rates are split between a reduced bracket and a normal bracket based on the same income thresholds (Bituach Leumi).

Income Tax

Israel applies a progressive income tax system with seven brackets. Tax brackets were restructured for 2026, with the 20% bracket expanded significantly. The brackets have been frozen through 2027, meaning no inflation adjustment will be applied (PwC Israel). All residents are entitled to a basic tax credit of 2.75 credit points (men) or 2.75 credit points (women receive an additional 0.5 points). Each credit point is worth ILS 2,904 annually for 2026.

Payroll Cycle

The standard payroll cycle in Israel is monthly. Salaries must be paid by the 9th of the following month under the Wage Protection Law 5718-1958. Payment is made by bank transfer; cash payments above ILS 6,000 are restricted under Israeli anti-money-laundering legislation. Employers must issue a detailed payslip (tlush sachar) each month showing gross salary, all deductions (income tax, National Insurance, health tax, pension), net pay, and cumulative year-to-date figures.

Employer tax and social security filings are due by the 15th of the month following the payroll period. Annual tax reconciliation (Form 126) must be submitted to the Israel Tax Authority by April 30 of the following year.

13th Month Salary and Bonus Pay

Israel does not have a statutory 13th month salary requirement. There is no legal obligation for employers to pay a year-end bonus

Israel does not have a statutory 13th month salary requirement. There is no legal obligation for employers to pay a year-end bonus. Some collective agreements and extension orders in specific sectors include provisions for annual bonuses, holiday gifts, or profit-sharing arrangements, but these are sector-specific rather than universal. Many Israeli employers voluntarily pay annual bonuses as part of their compensation packages, particularly in competitive sectors, but the structure and amount are entirely at the employer’s discretion unless a collective agreement applies.

Cost of Hiring Through an EOR in Israel

EOR Service Fees

Employer of record services in Israel typically cost between $300 and $600 per employee per month. This flat fee covers payroll processing, tax withholding and remittance, social security administration, pension and severance fund management, employment contract drafting, ongoing compliance monitoring, and HR support. The fee does not include the employee’s salary, employer contributions, or benefits costs, which are billed separately as pass-through costs.

Total Employment Cost Breakdown

The total cost of employing someone in Israel through an EOR includes the gross salary, mandatory employer contributions, and the EOR service fee. The table below illustrates a typical cost breakdown for an employee earning $5,000 per month gross. At this salary level, employer contributions add approximately 21.4% above gross, and the EOR fee brings the total to approximately 31.4% above gross salary (Bituach Leumi).

Figures converted at 1 USD = 3.60 ILS, April 2026. Additional costs such as convalescence pay, travel allowance, and Keren Hishtalmut contributions may apply depending on applicable extension orders and the employment agreement.

Ready to hire in Israel? Get started with Remote People. We handle employment contracts, payroll, tax withholding, and full Israel compliance. No local entity needed.

Benefits of Using an EOR in Israel

Hiring in Israel through an employer of record has clear advantages over setting up your own subsidiary. Israel’s patchwork of extension orders and standalone employment statutes, makes the EOR model especially practical.

• Speed to market: An EOR can onboard employees in Israel within 1 to 2 weeks, compared to the 2 to 4 months typically required to register a company through the Israeli Companies Registrar, open a local bank account, register with Bituach Leumi, and establish pension and severance fund accounts.
• Compliance assurance: Israel’s employment obligations span dozens of statutes, extension orders, and collective agreements that change frequently. An EOR maintains current knowledge of regulations including the latest minimum wage updates, pension contribution requirements, and leave entitlement changes, reducing the risk of non-compliance penalties from the Ministry of Labor.
• Cost efficiency: Establishing and maintaining a local entity in Israel involves annual filing fees, a local accountant, legal counsel, and administrative overhead. For teams of 1 to 15 employees, the EOR fee of $300 to $600 per employee per month is typically lower than the fixed costs of entity maintenance.
• Local expertise: An EOR in Israel handles the complexities of Section 14 severance fund management, Keren Hishtalmut enrollment, convalescence pay calculations, and the pre-dismissal hearing process, which require familiarity with both statute law and established labour court precedent.
• Flexibility to scale: Companies can add or reduce headcount in Israel without the legal and financial burden of winding down a subsidiary, which requires a formal dissolution process through the Companies Registrar.
• Risk mitigation: The EOR assumes the legal employer role and the associated compliance liability, including responsibility for correct tax withholding, timely social security remittance, and proper termination procedures under the Severance Pay Law 5723-1963.
• Employee experience: Employees hired through an EOR receive compliant employment contracts, timely salary payments, full social security coverage, and statutory benefits administration, providing the same legal protections as direct employment.

Termination and Offboarding in Israel

Notice Periods

When offboarding an employee hired through an employer of record in Israel, the Prior Notice Law 5761-2001 establishes minimum notice periods for both employer-initiated termination and employee resignation. Notice requirements depend on the employee’s pay structure (monthly vs. hourly/daily) and length of service. Notice can be given as working notice or as pay in lieu of notice. Both employer and employee are subject to the same notice requirements (Gov.il).

Just-cause termination (e.g., theft, violence, breach of trust) may allow immediate dismissal without notice, though the employer must still conduct a pre-dismissal hearing. Fixed-term contracts expire automatically at the end of the term, but if renewed or extended, the same notice obligations apply. Contracts can also include a mutual agreement to a notice period longer than the statutory minimum.

Severance Pay

Under the Severance Pay Law 5723-1963, employees who have completed at least one year of continuous employment with the same employer are entitled to severance pay upon dismissal. The standard calculation is one month’s salary for each year of service, based on the employee’s last monthly salary (Gov.il).

Calculation Method

The statutory formula is straightforward: one month’s last salary multiplied by the number of years of service. The “last salary” includes the base salary and any fixed, regular components (such as seniority increments) but excludes variable bonuses, overtime, and one-time payments. For employees who received salary increases during their tenure, the severance is calculated on the final salary, not the average. Partial years are calculated pro-rata. Under Section 14, the monthly severance fund deposits (8.33% of salary) accumulate in a dedicated pension/insurance fund and are released to the employee upon any termination, regardless of whether the termination would otherwise trigger a statutory severance obligation.

Caps and Exceptions

Israeli law does not impose a statutory cap on total severance pay. Employees dismissed for just cause (theft, fraud, gross misconduct) may lose their severance entitlement, but only following a labour court determination. Employees who resign generally are not entitled to statutory severance unless resignation is for a qualifying reason (relocation to a remote area, health reasons, or post-childbirth resignation within 9 months of birth). Under Section 14 arrangements, the accumulated fund belongs to the employee upon any separation, effectively removing the distinction between dismissal and resignation for severance purposes.

Grounds for Termination

Israeli law does not require “just cause” for termination, but employers must follow a fair process. Before any dismissal, the employer must conduct a pre-dismissal hearing (shimu’a) where the employee is informed of the grounds for potential termination and given an opportunity to respond. Failure to conduct a proper hearing can result in the termination being deemed unlawful by the labour court, potentially requiring reinstatement or enhanced compensation.

Protected categories include employees on maternity leave (protected for the full leave plus 60 days after return), employees on military reserve duty, and employees who filed complaints regarding workplace safety or employment rights violations. Collective dismissals (reducing workforce by more than 10% within 30 days) require notification to the Employment Service.

EOR vs. Other Hiring Models in Israel

EOR vs. Setting Up a Local Entity

Setting up a local entity in Israel requires registration with the Companies Registrar, opening a local bank account, registering with the Israel Tax Authority and Bituach Leumi, appointing a local director, and establishing pension fund relationships. The process typically takes 2 to 4 months and costs $15,000 to $30,000 in legal, accounting, and registration fees. The table below compares the two approaches across key operational factors.

For companies with fewer than 15 employees in Israel, the EOR model is typically more cost-effective and faster to implement. The break-even point where entity setup becomes worthwhile depends on the company’s long-term hiring plans, the need for government contract eligibility, and the desired level of direct control over HR operations.

The entity approach makes sense for companies committed to a permanent, large-scale presence in Israel. It provides full control over hiring practices, direct relationships with Israeli banks and government agencies, and eligibility for government tenders and grants administered by the Israel Innovation Authority.

EOR vs. Hiring Independent Contractors

Misclassification of employees as independent contractors carries significant risks in Israel. Israeli labour courts apply a multi-factor test to determine the true nature of the working relationship, examining factors such as degree of control, integration into the business, exclusivity, and economic dependence. If a contractor is reclassified as an employee, the employer faces retroactive liability for all unpaid benefits, including pension contributions, severance pay, annual leave, and social security, potentially spanning the entire engagement period.

Contractor arrangements are appropriate only in limited circumstances, such as genuinely independent professionals providing defined-scope project work to multiple clients simultaneously. For ongoing, core team roles in Israel, the EOR model provides full legal protection against misclassification liability.

Companies already working with contractors in Israel who are concerned about classification risk can explore Remote People’s Israel contractor management and contractor of record solutions for a compliant transition.

EOR vs. PEO (Professional Employer Organization)

Israel does not have a formal PEO regulatory structure like the United States does. Companies seeking co-employment arrangements must already have their own registered entity in Israel, which eliminates the primary advantage of outsourced employment. The EOR model is the standard solution for companies without a local presence.

The bottom line: if your company does not have a registered entity in Israel, the EOR is the only compliant way to hire employees. The PEO model requires an existing entity and provides HR outsourcing rather than full legal employer services.

Companies that already have an Israeli entity and want to outsource HR administration can explore PEO arrangements, but for market entry and remote team building, the EOR model eliminates the entity requirement entirely.

Public Holidays in Israel

An employer of record in Israel must account for 9 statutory paid rest days per year, all based on the Hebrew calendar. Because the Hebrew calendar is lunisolar, holiday dates shift each Gregorian year. Employers must account for this when planning payroll schedules and project timelines. Employees required to work on a public holiday are entitled to 150% of their regular wage plus a compensatory rest day (TimeandDate).

Holiday eves (erev chag) are shortened workdays; employees typically work until midday. Non-Jewish employees may substitute national holidays for their own religious observances under the Hours of Work and Rest Law. Payroll scheduling in September and October requires particular attention, as four holidays cluster within a three-week period.

How to Get Started with an EOR in Israel

Hiring employees in Israel through an employer of record is a step-by-step process. Here is what the setup looks like in practice.

• First, define your hiring needs: Identify the roles you need to fill in Israel, including job descriptions, compensation ranges, and whether the candidates are Israeli citizens or foreign nationals requiring work permits. This determines the onboarding timeline and any visa sponsorship requirements.
• Second, select an EOR provider: Evaluate providers based on their experience with Israeli employment law, their ability to handle Section 14 severance fund management, pension enrollment, Keren Hishtalmut setup, and their track record with Bituach Leumi compliance. Remote People provides full-service employer of record coverage in Israel.
• Third, sign the service agreement: The EOR agreement defines the scope of services, fee structure, liability allocation, and termination procedures. Review the agreement to confirm it covers all Israeli-specific requirements, including pre-dismissal hearing obligations and extension order compliance.
• Fourth, onboard your employees: The EOR drafts compliant employment contracts, registers employees with Bituach Leumi and the Tax Authority, enrolls them in a pension fund and Keren Hishtalmut, and sets up payroll. For Israeli citizens, onboarding completes within 1 to 2 weeks. For foreign nationals, add 8 to 14 weeks for work permit processing.
• Fifth, manage ongoing operations: The EOR runs monthly payroll, handles all tax filings and social security remittances, tracks leave balances, manages annual convalescence pay, and ensures ongoing compliance with regulatory changes. Your company manages the employee’s day-to-day work while the EOR handles the legal and administrative obligations.

Ready to build your team in Israel? Contact Remote People to start hiring in Israel within days, with full compliance and zero entity setup.

Where companies hiring in Israel expand next

Employers with teams in Israel often extend across the Levant and into nearby Gulf markets, where Arabic fluency and business ties create natural overlap. Teams frequently add operations in Greece for EU-level labor law alignment; the United Kingdom often follows for mature tech talent at favorable cost; hiring in the United States is a common next step, offering a scaled engineering workforce; and an EOR partner in Cyprus rounds out the regional footprint with overlapping Levant labor markets and mobility.